The cryptocurrency market has seen a meaningful recovery since the last major bull run. According to CoinMarketCap, the total market capitalization of all cryptocurrencies increased from over $790 billion to $1 trillion since the start of 2023, a 34% increase. Bitcoin price is also increasing from $15 mil in November 2022 to reach over $27mil as of Oct. 10, 2023. Overall, Bitcoin is now up a substantial 74% since its lows last year, and Bitcoin dominance has increased from 39.4% to 50.3% over the same period.
According to recent research by Delphi Digital, Bitcoin is currently part-way through the accumulation phase of the market cycle and could achieve a new price high by Q4 2024. The PlanB Stock to Flow model even suggests that a new price high could be reached as early as Q2 2024. The crypto market is volatile and risky but it’s also quite worth it if you do your due diligence.
And part of DYOR is getting to know your subject. Let’s start with crypto’s impact in Traditional Finance.
Crypto in Trad-Fi
- Cryptocurrency as an Asset Class
Cryptocurrencies, such as Bitcoin and Ethereum, represent a novel form of investment akin to stocks or bonds. They distinguish themselves by operating independently of governmental control or traditional banking systems. Increasingly, individuals view them as a means to diversify their investment portfolios, analogous to incorporating various investment types to manage risk. Notably, major financial institutions are acknowledging their significance and integrating them into their investment portfolios. Nevertheless, it is essential to recognize the inherent unpredictability and existing regulatory uncertainties in this space.
- De-Fi (Decentralized Finance)
Decentralized Finance, or DeFi, is a new approach to financial activities that operates without traditional banks overseeing transactions. Utilizing smart contracts, which are computer programs, DeFi enables lending, borrowing, and trading, fostering a more accessible and open financial system. This paradigm shift has the potential to alter the role of conventional banks, although challenges such as ensuring security and adherence to regulations must be addressed to fully realize its potential.
- CBDCs (Central Bank Digital Currencies)
Central Bank Digital Currencies (CBDCs) are digital forms of national currencies, centrally regulated and issued by the government’s central bank. Unlike cryptocurrencies, CBDCs maintain a centralized authority, offering governments increased control over monetary policy. The emergence and adoption of CBDCs signify a substantial evolution in global monetary systems, influencing traditional banking practices and broader economic dynamics. While CBDCs bring advantages such as enhanced financial inclusivity and reduced transaction costs, they also raise concerns about privacy and potential ramifications for commercial banks. The ongoing development of CBDCs signifies a notable progression in the understanding and utilization of currency on a global scale.
Crypto in Everyday Transactions
Speaking of, there’s a growing trend of using cryptocurrencies for payments. A recent estimate in early 2023 suggests that these crypto payments might increase by about 17% each year from 2022 to 2029. But, it’s important to know that using cryptocurrency for payments is expected to be a smaller market compared to other types of transactions, like central bank digital currencies (CBDC) or instant payments.
- What can we expect to happen in the future?
- Big companies accepting crypto: Major brands like Tesla, Microsoft, and PayPal have already started letting people use cryptocurrencies to pay for things.
- More businesses accepting crypto: As more companies get on board, we’ll likely see a greater variety of ways for people to use cryptocurrencies to pay for stuff.
- People wanting control over their money: With the rise of decentralized finance (DeFi), there’s a growing demand for services that let users keep control over their own funds without relying on someone else.
- More regular places accepting crypto: As more people use cryptocurrencies, more everyday places like shops and stores might start accepting them too.
- Getting paid in crypto: Some companies are now offering to pay their employees with cryptocurrencies, which could make more people interested in using digital money.
- Donating with crypto on social media: Social media and streaming platforms are starting to let users donate to their favorite creators using cryptocurrencies.
- Easier ways to use crypto for payments: As technology improves, we can expect simpler and more user-friendly options for using cryptocurrencies to pay for things.
In general, the future of using cryptocurrencies for payments looks promising.
Web3 Role in Economic Shift
Let’s shift focus a bit to the world of NFTs and their impact on the creative industry and intellectual property. We all know that NFTs are basically like a highly secure and valid digital license. It’s proof of ownership over virtually anything, and it’s verifiable, immutable and transparent. Aside from art, we know it’s been used for real estate and games as well.
What does that have to do with the economy? Can this cause a potential economic shift? Definitely, because it increases monetary options.
- More Jobs and Opportunities: NFTs give artists and creators a cool way to show off and make money from their work. This can lead to new businesses and more jobs, which is good for the economy.
- Money Flowing in Digital Markets: When people trade, sell, or auction NFTs, it creates a kind of economy in digital places. This can bring in money, create jobs, and help the digital side of the economy grow.
- Letting More People Join In: NFTs make it easier for regular folks to get into markets like art, gaming, and real estate. This means more people can be part of activities that used to be just for a few.
- Encouraging New Tech Stuff: Using NFTs pushes forward new technologies, especially in blockchain and decentralized systems. This can lead to creating new apps and solutions, moving technology and the economy forward.
- Really Owning Digital Stuff: NFTs make it so you truly own your digital things. This can turn anything digital into something with actual real-world value, which you can sell and get revenue from.
Now the OG; blockchain. There wouldn’t be crypto and NFT without it. So, how does blockchain benefit the economy? Blockchain tech has the potential to really shake up how supply chains work. A recent report from KPMG even says it could cut supply chain costs by up to 50%. How does it help?
- Easy Tracking: Blockchain makes it simple to map and see all the steps in a supply chain. It connects everything, making it easier to follow where things come from, like supplier info, getting stuff, and delivering it.
- Tamper-Proof Records: Every move in the supply chain gets recorded in a way that can’t be messed with. This makes it super easy to track where things started and how they moved around.
- Super Safe: Blockchain is top-notch when it comes to security. It’s really hard for anyone to mess with it, making it a great fit for keeping supply chains in check.
- Smooth Operations: Blockchain can make supply chain processes way smoother. It cuts down on the time and money usually spent on manual tasks.
- Less Fraud: Because every transaction is recorded and can’t be messed with, blockchain helps cut down on sneaky business. It’s like having a super-secure record of everything that happens in the supply chain.
In 2024, we’re likely to see more companies getting on board with blockchain for their supply chains. All in all, using blockchain in supply chain management is expected to help the economy by saving money, making things run smoother, and keeping everything super secure.
Now the last thing that can definitely help boost economic growth, is actually, a DAO. DAOs could change how businesses are run, making decision-making more democratic and spread out. Even though there are challenges, like making sure everything follows the rules, the future for DAOs looks pretty bright.
- Investment: Imagine people coming together to invest in things like real estate, art, or commodities. DAOs can make that happen by letting investors pool their money and invest in different stuff.
- Governance: DAOs can also be used to make decisions in a way that’s not controlled by one person or a small group. Members can vote on things and decide together.
- Philanthropy: These groups could also do good things for the world. Members can join forces and donate money to help charitable causes.
- Community: DAOs can help people work together on projects and ideas. It’s like a way for a bunch of people to team up and get things done.
From changing how we invest to making transactions smoother, these innovations offer exciting chances for the economy to grow and include more people. Although there are challenges like following rules and making everything work together seamlessly, the future looks promising with more growth, new ideas, and a transformed digital economy on the horizon.